Red Rock Resorts Stock Edges Higher Despite Overall Market Decline
Shares of Red Rock Resorts (NASDAQ: RRR) saw a slight increase on a day when gaming equities were generally down. This came after the company released its third-quarter results, which were better than expected.
The parent company of Station Casinos reported earnings of 60 cents per share on revenue of $411.6 million for the July through September period. Analysts had projected earnings of 39 cents on sales of $412.2 million. Despite the news that the opening of the Durango Casino and Resort has been delayed to December 5 from November 20, sell-side analysts are still bullish on the stock.
Many analysts believe that overall concerns about regional gaming equities due to macroeconomic headwinds are already priced into the shares of Red Rock. They argue that the company could remain resilient, especially with the ongoing strength in the Las Vegas locals segment.
Stifel analyst Steven Wieczynski stated, “While there could be near-term hesitancy to buy RRR shares for a number of macro-related reasons, longer term we continue to believe spending/visitation trends will remain relatively healthy across the LV Locals market while RRR’s stable cost structure should ultimately allow for greater flow through.”
Despite lowering his price target on Red Rock to $47 from $51, Wieczynski’s revised forecast still implies a potential upside of more than 10% from current levels.
One benefit for Red Rock is its strong balance sheet relative to its peers. The company has been outpacing rivals in converting earnings before interest, taxes, depreciation, and amortization (EBITDA) into free cash flow, which could be significant over the long term.
Moreover, there are macro tailwinds specific to Las Vegas that could drive long-term appreciation in Red Rock stock, such as rapid population growth. This is essential for a gaming operator with all of its venues in the Las Vegas Valley.
The delayed opening of Durango does not diminish its potential as a catalyst for Red Rock shares in 2024. CBRE analyst John DeCree reiterated a “buy” rating on the stock, pointing out that the new casino resort could bolster Red Rock’s free cash flow and speed up the operator’s deleveraging efforts.
In addition, Red Rock’s ownership of all the real estate on which its casinos reside, as well as hundreds of acres of unused land throughout Las Vegas, offers favorable volatility characteristics relative to peers. With these factors in mind, analysts remain optimistic about the long-term prospects for Red Rock Resorts.